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Labopharm Reports Financial Results for Second Quarter 2011

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^{Published in Health and Fitness on Thursday, August 4th 2011 at 4:11 GMT by Market Wire}  

LAVAL, QC, Aug. 4, 2011 /CNW/ - Labopharm Inc. (TSX: DDS) today reported its financial results for the second quarter ended June 30, 2011.  All figures are in Canadian dollars unless otherwise stated.

Labopharm's Board of Directors and senior management team are continuing to progress with the comprehensive review of the business, including consideration of all available strategic options, with the objective of maximizing value for shareholders.

"We are encouraged by our continued progress with the strategic review, including the restructuring of our partnership with Angelini, which will support our objective of capital preservation as we continue to evaluate all of our strategic options to determine the appropriate path forward," said Mark A. D'Souza, President and Chief Executive Officer, Labopharm Inc.  "As we move forward with the process, we will continue to focus on expense management and capital preservation while ensuring we have adequate resources to support our ongoing operations."

Recent Developments

Capital Preservation Initiatives - As part of the ongoing strategic review and consistent with its intention to preserve capital, Labopharm announced further reductions of its workforce in July, eliminating 23 additional positions resulting in incremental cost savings of approximately $2.7 million annually.  In aggregate, total workforce reductions of 61 positions in 2011 are expected to result in cost savings of approximately $6.5 million annually.  Following the reduction, Labopharm has 71 employees to support its ongoing operations.

Restructured Partnership with Angelini - Labopharm and Gruppo Angelini (Angelini) have entered into an agreement to restructure their partnership.  The existing agreement will be terminated and Labopharm will grant Angelini an exclusive license and rights related to OLEPTRO™ in the U.S., Canada and other countries globally in exchange for a royalty on product sales.  As a result of the partnership restructuring, Labopharm will no longer be responsible for funding the joint venture.  The transaction is subject to closing conditions customary to such transactions.

Granted Angelini License and Rights for Commercialization of Twice-Daily Acetaminophen - As part of the restructuring of its partnership with Angelini, Labopharm has granted to Angelini an exclusive license and rights to commercialize Labopharm's twice-daily acetaminophen formulation in all European Union countries, Turkey, Georgia and the Commonwealth of Independent States (CIS). If Angelini decides to develop such formulation, Labopharm will be entitled to receive a 5% royalty on product sales.

Conclusion of Discussions to Terminate Marketing Partnership for Twice-Daily Tramadol Acetaminophen - Labopharm and Grünenthal GmbH (Grünenthal) concluded the previously announced discussions to terminate their agreement whereby Labopharm had previously granted Grünenthal the exclusive right to market and sell its twice-daily tramadol-acetaminophen product in certain countries in Europe.  As part of the strategic review process, the Company is working towards determining the best path forward for this product, which received a positive opinion under the European Decentralized Procedure for eight European countries in 2010 and Marketing Authorizations for certain countries subsequently.

Financial Results

Going Concern Uncertainty

Labopharm's current level of annual expenditures and debt service obligations exceed the anticipated sources of funds and its cash and cash equivalents as of June 30, 2011. These factors indicate the existence of a material uncertainty which may cast doubt on the Company's ability to continue as a going concern should it be unable to obtain additional financing or successfully execute a viable plan at the conclusion of its strategic review process.

Discontinued Operations

As a result of the sufficient advancement of discussions with Angelini to restructure the partnership between the two companies and the expectation that Labopharm will transfer its ownership interest in its joint venture to Angelini, Labopharm ceased proportionate consolidation of its interest in the joint venture entities as of June 1, 2011 and classified this interest as held for sale. Accordingly, the results of operations related to the joint venture entities are considered discontinued operations.

Adoption of IFRS

Beginning with the three-month period ended March 31, 2011, Labopharm is reporting its financial results in accordance with International Financial Reporting Standards (IFRS), as required for public companies in Canada. Previously, the Company reported its financial results under Canadian Generally Accepted Accounting Principles (GAAP). Financial results for the corresponding periods in 2010 have been restated to reflect the adoption of IFRS.

Three-Month Period Ended June 30, 2011

Total revenue for the second quarter of 2011 was $9.8 million compared with $5.4 million for the second quarter of 2010.  The increase in revenue was due primarily to the recognition as licensing revenue of $5.6 million in up front and milestone payments previously received from Grünenthal and recorded as deferred revenue as a result of the termination of the agreement for the twice-daily tramadol-acetaminophen product.

Revenue from product sales was $3.1 million compared with $3.3 million for the second quarter of 2010. The decrease in product sales was the result of slightly lower sales volumes combined with a lower average selling price for once-daily tramadol due to an unfavourable country mix, which were partially offset by a favourable year-over-year variance in the exchange rate of the euro to the Canadian dollar.

Licensing revenue was $6.4 million compared with $0.6 million for the second quarter of 2010 and represented a portion of the licensing payments received from marketing and distribution partners for once-daily tramadol, as well as the aforementioned recognition of $5.6 million in up front and milestone payments previously received from Grünenthal and recorded as deferred revenue.

Revenue from services and research and development collaborations was $0.3 million compared with $0.8 million for the second quarter of 2010. This was primarily related to the provision of services to Angelini Labopharm (the joint venture created with Angelini for the commercialization of OLEPTRO™ in the U.S.), and to third-party formulation development agreements in 2010.

Gross margin as a percentage of revenue from product sales of once-daily tramadol was 57% compared with 56% for the second quarter of 2010.

Research and development expenses, before government assistance, were $2.0 million compared with $2.6 million for the second quarter of 2010.  The decrease was primarily due to various cost-reduction initiatives and cost constraints on the Company's development programs, as well as lower stock-based compensation expense.  Estimated provincial refundable research and development tax credits were $0.2 million compared with $0.3 million for the second quarter of 2010.

Selling, general and administrative expenses were $3.0 million compared with $5.0 million for the second quarter of 2010.  The decrease is primarily attributable to reduction in headcount costs the absence in 2011 of accruals for the Company's share of tramadol patent litigation costs incurred by Purdue Pharma Products Limited, the release of $0.2 million of certain provisions in 2011, and lower stock-based compensation and other cost reductions as part of the Company's cash preservation initiatives.

Earnings from continued operations for the second quarter of 2011 were $2.1 million, or $0.03 per share, compared with a loss from continued operations of $4.8 million, or $0.07 per share in the second quarter of 2010.  Net loss for the second quarter of 2011 was $1.7 million, or $0.02 per share, compared to net income of $21.1 million, or $0.30 per share, for the second quarter of 2010.  Earnings from continued operations and net loss for the second quarter of 2011 included a restructuring charge of $0.5 million related to the reduction in workforce in July of 2011.

Cash and cash equivalents as at June 30, 2011 were $27.4 million compared with $34.6 million as at March 31, 2011 (excluding Labopharm's proportionate share of the cash and cash equivalents held by Angelini Labopharm).  The decrease was primarily the result of the funds used in operating activities, and the $2.2 million repayment of the term loan with Hercules Technology Growth Capital, Inc. and interest thereon.

Six-Month Period Ended June 30, 2011

Total revenue for the first six months of 2011 was $14.6 million compared with $10.0 million for the comparable period of 2010.  Revenue from product sales was $6.6 million compared with $6.5 for the comparable period in 2010.  Higher sales volumes and a favourable year over year variance in the exchange rate of the euro compared to the Canadian dollar, were partially offset by a lower average selling price for once-daily tramadol due to an unfavourable country mix.

Gross margin as a percentage of revenue from product sales for once-daily tramadol was 55%, essentially unchanged from the comparable period in 2010.

Licensing revenue for the first six months of fiscal 2011 was $7.2 million compared with $1.2 million for the first six months of fiscal 2010.  The rationale for this increase is similar to that discussed for the quarter.

Loss from continued operations was $4.2 million, or $0.06 per share, compared with $10.7 million, or $0.16 per share for the comparable period in 2010. Net loss was $14.0 million, or $0.20 per share, compared with net earnings of $13.0 million, or $0.19 per share, for the first six months of fiscal 2010.  Loss from continued operations and net loss for the first six months of 2011 included a restructuring charge of $2.4 million related to the reductions in workforce in March and July of 2011.

Conference Call

Labopharm will host a conference call today (Thursday, August 4, 2011) at 8:30 a.m. ET to discuss its second quarter 2011 progress and financial results. To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191.  Please connect approximately five minutes prior to the beginning of the call to ensure participation.  The conference call will be archived for replay until midnight on Thursday, August 11, 2011.  To access the archived conference call, dial 416-849-0833 or 1-855.859.2056 and enter the reservation number 87032649 followed by the number sign.  A live audio webcast of the conference call will be available at [ www.labopharm.com ].  Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.  The webcast will be archived at the above web site for 30 days.

About Labopharm Inc.

Labopharm is focused on realizing value from its commercialized products and creating additional value by leveraging its emerging technology platforms to develop increasingly differentiated products.  For more information, visit [ www.labopharm.com ].

This press release contains forward-looking statements within the meaning of applicable Canadian Securities legislation, including statements concerning the restructuring of the joint venture with Gruppo Angelini, statements regarding the Company's twice daily acetaminophen formulation, statements regarding the Company's twice daily acetaminophen tramadol combination product and statements regarding the Company's going concern uncertainty which reflect Labopharm's current expectations regarding future events. These forward-looking statements involve risks and uncertainties, many of which are beyond Labopharm's control. Actual events could differ materially from those projected herein and depend on a number of risks and uncertainties, including risks related to Labopharm's ability to complete partnering transactions and the terms of any such collaboration, if any, risks related to the market acceptance of Labopharm's products and the speed of adoption by clinicians, risks related to intellectual property protection and potential infringement of third-party rights, risks related to research and development of pharmaceutical products and regulatory approvals, and risks associated with intense competition in the pharmaceutical industry generally. For additional disclosure regarding these and other risks faced by Labopharm Inc., see the disclosure contained in its public filings with the Canadian Securities Administrators (CSA), available on the Investor Relations section of Labopharm's website at [ www.labopharm.com ] and on the CSA's website at [ www.sedar.com ]. Investors are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, Labopharm undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events, or circumstances or otherwise.

OLEPTRO™ is a trademark of Labopharm Inc.

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